Cost Control, Still Not a Fantasy

November 16, 2009

Opponents of reform have long dismissed the possibility that the bills moving through Congress might actually reduce the cost of medical care. Now they're citing, as proof of their argument, a new analysis from Medicare's Office of the Actuary.

At the request of Congressional Republicans, the Office of Actuary (headed by Rick Foster) projected how the bill that recently passed the House of Representatives would affect insurance coverage, costs to the government, and overall national health spending.

The news on the first two fronts was actually pretty encouraging: Like the Congressional Budget Office (CBO), the Office of Actuary predicted the House bill would mean insurance coverage for nearly 34 million additional people, so that 93 percent of all residents--and a much higher percentage of legal residents--had coverage. While the Office of Actuary didn't formally project the net impact on the federal budget, because it didn't take into account new tax revenues, its numbers suggested that the program would in fact pay for itself over the ten-year budget planning window.

But it was the verdict on national health care spending that got much of the attention. The Office of Actuary predicted that, by enacting the House bill, the U.S. as a whole--including all public and private expenditures--would commit itself to spending an additional $280 billion on medical care over the next ten years. In other words, reform would mean the country is shelling out even more cash, not less, to pay for our health care.

That's obviously not great news. The judgment will, and should, be taken very seriously. But it's also important to put the finding in context.

For one thing, the numbers aren't as worrisome as they might sound. In 2019, the final year of the projection, the Office of Actuary projects that the House bill would add just $60 billion to national health spending. That is less than 1.4 percent of what the country would spend as a whole that year.

Or put it this way: Over the course of ten years, the House bill would, by itself, would raise the nation's total health care bill by less than 1 percent. That is a tiny fraction of what health care costs go up in just one year, let alone ten.

And all of that is assuming the numbers are correct. The Office of Actuary--again, much like CBO--takes a pretty conservative view about the potential of reforms like comparative effectiveness research, crediting them with little or no savings. It may be right about that and, to be sure, there are some valid institutional reasons why the Office of Actuary (like CBO) may want to err on the side of assuming the worst. But the assumptions can be wrong, too. In fact, they have been before.

Most important, perhaps, the Actuary's analysis was limited to the House bill--which, by most reckonings, would do less to control costs than whatever comes to the Senate floor in the next few days. Remember, the Senate bill has two key components that the House bill lacks: It would impose a tax on the most generous insurance benefits and it would strengthen a government commission in order to help ratchet down Medicare reimbursements. Both are expected to reduce health care spending. (Ezra Klein has the full story on those.)

None of this is to say that we should be complacent about the ability of reform to lower health care costs. While holding down costs sounds great in theory, it's difficult politically because--generally speaking--it means taking money out of the pockets of the companies and people who either produce or provide medical care. Lobbyists for these groups fight hard to keep cost cutting from going too far. And they often win. But this report shouldn't convince anybody that cost control is futile. If anything, it suggests that cost control is actually within grasp, as long as there's some reasonable political will.*

*Yes, I think that's possible. If you're skeptical, read this and this.